Portola Pharmaceuticals: Is It Still a Buy?

Portola Pharmaceuticals (NASDAQ: PTLA) is one of the most interesting and frustrating companies in biotech. It's interesting because it overcame the odds and secured not one, but two Food and Drug Administration approvals within the span of about one year. It's frustrating because commercial demand for one of those drugs hasn't materialized, and sales of the second drug have been hamstrung by supply constraints. Are this biotech's best days behind it, or should investors remain bullish?

A big accomplishment

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Studies have shown that about 90% of drugs that make it into clinical trials never make it to market, and that means the odds are stacked against biotech companies succeeding.

Despite the high risk of failure, Portola was able to pass the FDA gantlet with two drugs: Bevyxxa and Andexxa. Bevyxxa, a factor Xa inhibitor used to prevent blood clots following hospitalization, got the regulatory nod in June 2017, while Andexxa, an antidote that can be used to reverse factor Xa inhibitors, won the agency's OK in May 2018.

Over 100,000 people die in the U.S. every year because of blood clots that form in veins, and acutely ill elderly patients are particularly at risk following hospitalization. Historically, patients have been treated with generic Lovenox for six to 14 days to prevent clots. In trials, Bevyxxa outperformed Lovenox in reducing the occurrence of clots by about 20%.

The need for Andexxa has been growing as factor Xa drugs have increasingly won market share away from Warfarin, an anticoagulant. Warfarin has been around for decades, but its use requires frequent dose adjustments and dietary restrictions to avoid vitamin K. And it carries the risk of brain hemorrhage. Viewed as a better option, the top-selling factor Xa inhibitors -- Eliquis and Xarelto -- now generate over $10 billion in revenue per year. However, unlike Warfarin, there wasn't an approved reversal agent for this class of drugs until Andexxa's approval.

Stumbles galore

Although Bevyxxa's data was ultimately good enough to win FDA approval, the trial results were arguably mixed. The trial was designed so that success in cohort 1 would result in an evaluation of cohort 2, which, if successful, would lead to a look at cohort 3. Unfortunately, Bevyxxa appeared to outperform Lovenox in cohort 1, but it did so with a p-value of 0.054. As a refresher, p-values below 0.05 are the gold standard when it comes to establishing confidence a drug has met its mark.

The p-value didn't miss by much, and the trial was a first-in-kind in design, so Portola went ahead and did the evaluations on cohorts 2 and 3. In those groups, there was a 20% improvement with a p-value below 0.03. The performance in those cohorts was enough to secure an FDA green light, but the failure of cohort 1 still cast a long shadow.

Portola Pharmaceuticals' change to a new manufacturing approach also caused problems. Rather than launching quickly, Bevyxxa was delayed until the new approach was approved by the FDA in December 2017. Unfortunately, Bevyxxa demand never materialized. Its quarterly sales numbered in the thousands of dollars, rather than millions, and a lack of its use led to hospitals returning expired product. As a result, Portola has all but abandoned marketing it.

Andexxa has been more commercially successful, but its path was also bumpy. Despite successfully reversing the anticoagulant effects associated with common factor Xa inhibitors, the FDA initially rejected Andexxa's application for approval in 2016, citing a need for more data in less-common factor Xa inhibitors and questions regarding manufacturing.

After its application was resubmitted with changes, regulators approved Andexxa, but its availability early on suffered from changes to its manufacturing, too, limiting the number of facilities that Portola could supply until its new manufacturing approach got approval.

Back on track?

The decision to walk back support for Bevyxxa followed the exit of longtime CEO Bill Lis and the hiring of industry veteran Scott Garland.

Last year, Garland shifted sales and marketing support to Andexxa ahead of approval of its new manufacturing approach, which was awarded in January 2019. And this year, he exchanged some of Andexxa's future royalties for $125 million in up-front funding to extend Portola's cash runway into 2020.

Those cash-conscious decisions could buy the company time to roll out Andexxa more widely now that the supply bottleneck is clearing. Also, it buys time for the company to decide how to proceed with its next drug, cerdulatinib, which has completed midstage studies in tough-to-treat blood cancers with limited treatment options.

In March, Portola updated investors on its progress. The company reported fourth-quarter 2018 Andexxa revenue of $14 million, up 80% from the previous quarter. As of Dec. 31, 200 hospitals had stocked Andexxa, double the number from the prior three-month period, and 50% had reordered it, up from 40% in Q3.

Management also announced that a key advisory committee in Europe had voted to approve Andexxa, paving the way to an official European approval soon. If approved, it will more than double the number of patients that may benefit from Andexxa to over 280,000 per year.

What now

Portola's success relies heavily on rapidly growing demand for Andexxa. The company forecasts it will spend over $125 million on research and development and over $200 million on selling, general, and administrative expenses in 2019, so cash burn remains a concern. If U.S. Andexxa sales accelerate, the company can find a European marketing partner for Andexxa, or a partner emerges for Bevyxxa, it would go a long way toward reducing worry that a cash crunch could be coming next year.

It would also be encouraging if the company can nail down plans for cerdulatinib. During its last conference call, management said it had sat down to review trial data with the FDA and come up with a plan for more studies. But it also indicated it has provided more data on the drug to the FDA and that it's awaiting feedback on when it can begin its next study.

Overall, Portola Pharmaceuticals' history raises some questions about the likelihood of successfully executing on its plans, and that makes this a tough stock to recommend to new investors. But Andexxa could be a blockbuster drug someday, and since there's enough cash on the balance sheet for now, and an upcoming catalyst in the form of an EU decision, existing shareholders might want to stay the course.

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Todd Campbell owns shares of Portola Pharmaceuticals. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.